The Central Bank of Egypt (CBE) announced on Monday that its new risk-free interest rate benchmark CONIA became effective.
The new benchmark CONIA, standing for the Cairo Overnight Interbank Average, was developed by the Egyptian Money Market Contact Group (MMCG), which brings together the CBE, commercial banks, and the European Bank for Reconstruction and Development (EBRD).
It aims to support the development and availability of a wider range of financial products for participants in the financial sector and the improvement of the capital market and derivatives.
CONIA is a development of the overnight interest rate on interbank transactions.
According to the CBE, the new benchmark is a milestone and important tool to support the implementation of the money market reforms and derivatives.
EBRD Treasurer Axel van Nederveen said, “the new benchmark is very important for the development of Egyptian capital markets.”
Similar risk-free rates had already been developed for major currencies in other monetary jurisdictions, he noted.
The CBE said that there will be no change in the framework of Egypt’s monetary policy after the launch of the new standard, noting that the launch of CONIA would strengthen the ability of the CBE to implement monetary policy more efficiently, in addition to support and implementation of monetary and derivatives market reforms, similar to the developments and variables in pricing structures in global markets such as Libor and Euribor as a prelude to exiting them.
The CBE noted that similar standard limits for risk-free interest rates are being developed and started to be used as alternatives as well as to major currencies in other capital markets without any change in the monetary policy framework.
He explained that CONIA is calculated by means of the average weighted average overnight interest rate due to the actual interbank transactions in the interbank market in Cairo, after excluding the largest and lowest 15% of the extreme values, and will be published daily as of October 2019.
Mohamed Abdel Aal, a banking expert and a member of the board of directors of the Suez Canal Bank, said that because of the confidence and transparency of this new standard, it will help deepen and widen the financial and money market in Egypt.
He explained that the launch of this standard paves the way for the creation and construction of a derivatives market in the Egyptian pound, which cannot be done without such an index, which transparently expresses the weighted averages of interbank rates for day-to-day transactions.
He added that based on this daily index, the current and expected short and medium-term interest rate curve can be derived with great accuracy and also stabilized, thus facilitating international trade finance operations.
Abdel Aal expected the new standard to support and complement the plans of economic, monetary, and financial reform, and to have a positive impact on the stability of the exchange rate and the activities of the stock exchange.
